Question

# The following table shows an abbreviated income statement and balance sheet for Quick Burger Corporation for...

The following table shows an abbreviated income statement and balance sheet for Quick Burger Corporation for 2016.

 INCOME STATEMENT OF QUICK BURGER CORP., 2016 (Figures in \$ millions) Net sales \$ 27,584 Costs 17,586 Depreciation 1,419 Earnings before interest and taxes (EBIT) \$ 8,579 Interest expense 534 Pretax income 8,045 Taxes 2,816 Net income \$ 5,229
 BALANCE SHEET OF QUICK BURGER CORP., 2016 (Figures in \$ millions) Assets 2016 2015 Liabilities and Shareholders' Equity 2016 2015 Current assets Current liabilities Cash and marketable securities 2,353 2,353 Debt due for repayment — 418 Receivables 1,392 1,352 Accounts payable 3,420 3,160 Inventories 139 134 Total current liabilities 3,420 3,578 Other current assets 1,106 633 Total current assets 4,990 4,472 Fixed assets Long-term debt 13,650 12,151 Property, plant, and equipment 24,694 22,852 Other long-term liabilities 3,074 2,974 Intangible assets (goodwill) 2,821 2,670 Total liabilities 20,144 18,703 Other long-term assets 3,000 3,116 Total shareholders’ equity 15,361 14,407 Total assets 35,505 33,110 Total liabilities and shareholders’ equity 35,505 33,110

In 2016 Quick Burger had capital expenditures of \$3,066.

a. Calculate Quick Burger’s free cash flow in 2016. (Enter your answer in millions.)

b. If Quick Burger was financed entirely by equity, how much more tax would the company have paid? (Assume a tax rate of 35%.) (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)

c. What would the company’s free cash flow have been if it was all-equity financed?

a) We need to calculate cash flows from operations first.

Cash Flow from operations = Net income+Interest+Depreciation- Additions to net working capital

Additions to net working capita= (\$1392+1391106-3420)-(\$1352+134+633-\$3578)

= (729)-(1459) = \$730

=\$5229+\$534+\$1419-\$730

=\$6452

Free cash Flow = \$6452-\$3066 (capital expenditure)

= \$3386

b)Income Statement

 Net sales \$27584 \$27584 COGS 17586 17586 Depreciation 1419 1419 EBIT \$8579 \$8579 Interest Expense 0 534 Pre tax income \$8579 \$8045 Taxes @ 35% \$3002.65 \$2815.75 Net Income \$5576.35 \$5229.25

= \$186.9

Cash flow from operations here will be = net income + interest (1-tax)+depreciation - Additions to work in capital

=\$5229+(534(0.65)+\$1419-\$730

=\$6265.10

Free Cash Flows = \$6265.10-\$3066

= \$3199.10

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